Market Progress and Evaluation Report (MPER) For the 2005 Massachusetts ENERGY STAR Lighting Program

Transcription

1 Market Progress and Evaluation Report (MPER) For the 2005 Massachusetts ENERGY STAR Lighting Program FINAL September 29, 2006 Volume 1 Findings and Analysis Submitted to: Cape Light Compact Massachusetts Electric Company Nantucket Electric Company NSTAR Electric Western Massachusetts Electric Company Unitil Submitted by:, Inc. RLW Analytics, Inc. Shel Feldman Management Consulting Dorothy Conant 22 Haskell Street, Cambridge, MA Phone: (617) Fax: (617)

2 Massachusetts ENERGY STAR Lighting MPER 2005 Contents Executive Summary... i Findings... i Program achievements... i The current state of the market... ii Involvement of manufacturing and retail partners...iii Program Procedures... iv Technical Considerations... v Conclusions... vi The Efficient Lighting Market... vi Program Structure... vii Recommendations... vii Program Design... vii Fixtures and New Technology Developments...viii Program Accounting... ix Mercury... x Product Quality... x Tracking Program Progress over Time... x Closing Comment... xi 1. Program Description and Evaluation Components Goals and Objectives Current Program Components Catalog Retail coupons NCPs Program History Budgets Evaluation Components Market Effects and Attribution to the Program The Current Residential Lighting Market Product Quality PEARL Comparison with Massachusetts Program Product Listings ENERGY STAR Comparison with Massachusetts Program Product Listings Mercury in CFLs Proposed ENERGY STAR Bulb Specification Product Pricing CFL Pricing Fixture Pricing Consumer Awareness of and Experience with CFLs and Energy-Saving Fixtures Numbers of CFLs and Energy-Saving Fixtures in Use and in Storage Bulb and Fixture Purchasing Habits Consumer Attitudes Satisfaction with Lighting Products Consumer Recall of Marketing Efforts Safety Concerns Associated with CFLs... 38

3 Massachusetts ENERGY STAR Lighting MPER Opinions about Energy-Efficient Lighting Sales and Stocking Practices Torchieres Process Findings Retailer Satisfaction With and Use of the Program Retailer Perceptions of Customer Response to the Program The NCP Process Program Marketing Program Delivery Data Tracking Tracking of Shipments versus Sales for NCP Buydown Agreements The Current NCP Tracking System NCP Modifications Conclusions and Recommendations Current State of Market Transformation and Need for Continued Intervention Recommendations Appendices (In Separate Volume) Appendix A: Market Size Estimate Appendix B: Product Quality Assessment Appendix C: Product Pricing Assessment Appendix D: Consumer Focus Groups Appendix E: Consumer Survey Appendix E-1: Consumer Survey Report Appendix E-2: Comparability Memo Appendix E-3: Phone Survey Questionnaire Appendix F: Retailer Survey Appendix F-1: Retailer Survey Memo Appendix F-2: Retailer Survey Data Collection Tools Appendix G: Process Documentation Appendix G-1: Process Documentation Memo Appendix G-2: Process Discussion Guides Appendix H: Database Analysis Appendix I: Socket Count List of Tables Table 1-1: Annual Product Shipments by Product Type and Program Component... 5 Table 1-2: Change in Product Mix 2002 to Table 1-3: Evaluation Activities in 2005 and Planned Activities Table 2-1: Market Effects and Indicators Table 3-1: Summary of Program Products Tested through PEARL Table 3-2: Summary of Reasons for Failure of PEARL Testing Table 3-3: Bulb Models Matched to ENERGY STAR List that Have Been Table 3-4: Prices of Various Screw-Based CFL Configurations Table 3-5: Saturation of CFLs Out of All Eligible Sockets... 35

4 Massachusetts ENERGY STAR Lighting MPER 2005 Table 3-6: Estimated Number of Energy-Saving Lighting Products Currently Installed in Households in Massachusetts Table 3-7: Average Number of Products in Homes of Current Users, Table 3-8: Storage of CFLs Table 3-9: Bulb Purchases in the Past Six Months Table 3-10: Satisfaction with CFLs and Energy -Saving Fixtures Table 3-11: Statewide Retail Sales Estimates for Table 3-12: 2005 CFL Sales through All Sources Table 3-13: Massachusetts Residential Sales, Medium Screw-Based Lamps Table 3-14: California and US Residential Sales, Medium Screw-Based Lamps Table 3-15: Statewide CFL Inventory Summary Table 3-16: Type of Bulb used in Torchieres Table 3-17: Types of Stores at which Respondents Purchased Torchieres Table 4-1: Retailer Perceptions of ENERGY STAR-Qualified Lighting Products Table 4-2: Likelihood of Participating With No Rebate and Half of the Rebate Table 4-3: Retailer Perceptions of Customer Views on Efficient Lighting Table 4-4: Perceived Importance of Efficiency and Other Lighting Characteristics Table 5-1: Assessment of Transformation of the CFL Market Table 5-2: Assessment of Transformation of the Energy-Saving Fixture and Torchiere Market 60 Table 5-3: Barriers and Opportunities in the Lighting Market by Delivery Option List of Figures Figure 1-1: Massachusetts Residential Lighting Program Implementation Expenses by Sponsor Figure 1-2: Implementation Budgets by Expense Category... 7 Figure 1-3: Trends in Spending, Savings, Cost per Product & Number of Products... 8 Figure 1-4: Expense per Product Figure 1-5: Lifetime Savings by Product Type by Year Figure 3-1: Respondents Familiar with CFLs and Energy-Saving Fixtures Figure 3-2: Respondents Currently Using CFLs and Energy-Saving Fixtures Figure 4-1: Price per CFL in Order to Get One-Half of Customers to Purchase... 49

5 Massachusetts ENERGY STAR Lighting MPER 2005 Page i Executive Summary This report summarizes the results and implications of evaluation activities completed as part of the Market Progress and Evaluation Report (MPER) for the 2005 Massachusetts ENERGY STAR Lighting Program by, Inc., RLW Analytics, Inc., Shel Feldman Management Consulting, and Dorothy Conant. It reviews key findings, provides an analysis of the degree to which the CFL, fixture, and torchiere markets have been transformed, and offers several recommendations for consideration by the Sponsors, which include Cape Light Compact, Unitil, National Grid, NSTAR, and Western Massachusetts Electric. A full report of findings and analysis for the 2005 MPER is provided to the Sponsors under separate cover. Findings A wide variety of research activities were conducted in support of the program evaluation. Their results can be categorized as documenting the achievements and costs of the program, describing the current state of markets for energy-efficient lighting products, outlining the involvement of manufacturing and retail partners, making inferences about program procedures, and discussing technical considerations. Key points in each of these categories are listed below. Program achievements Since 2002, the Sponsors Lighting Program has included three basic components: The ENERGY STAR Lights catalog (and website) Instant rebate coupons Negotiated Cooperative Promotions (NCP) In 2005, 93% of the products distributed through the Massachusetts ENERGY STAR Lighting program came from the NCP component. Program-related shipments of CFLs have increased dramatically since the Sponsors first began offering a joint efficient lighting program from 158,000 in 1998 to 3.3 million in The multiple program components the catalog, retail coupons, and the Negotiated Cooperative Promotions appear to meet somewhat different needs of the market and provide complementary opportunities for consumers and for retailers. Program-related shipments of energy-saving fixtures and torchieres have also increased considerably from 1998, although they dropped back between 2004 and Relevant shipments of energy-saving fixtures went from 46,000 in 1998 to 119,000 in 2004, falling to 67,000 in Relevant shipments of energy-saving torchieres increased from 774 in 1998 to 38,000 in 2004, falling to 15,000 in The program appears to be highly cost effective. Despite the enormous increase in product distribution associated with the program, total implementation expenses have only risen from $6.3 million in 2000 to $10.5 million in 2005, having peaked at $12.3 million in Collectively, Sponsors 1 As documented through supporting sales data for coupon, catalog, and NCP markdown programs and through documented shipping confirmation for the NCP buydown program.

6 Massachusetts ENERGY STAR Lighting MPER 2005 Page ii budgets for planning and administration, marketing, and technical support have actually declined slightly, so the increase has gone almost entirely to customer incentives. Lifetime savings resulting from the 2005 program year are estimated to be almost 950,000 MWh, as adjusted for hours of use, in-service rates, and free ridership, but not spillover. The cost per average MWh saved is estimated to be about $11, without taking spillover into account. 2 CFLs account for about 92% of these savings, while fixtures account for about 7%, and torchieres for about 1%. The current state of the market Here, we summarize findings with regard to customer awareness, product quality, environmental considerations, customer satisfaction, and pricing, as well as trial and usage and sales volumes. Customer awareness is high for CFLs, but not for energy-saving fixtures. About eight out of ten consumers express familiarity with CFLs, a high proportion that has held steady since In contrast, one in four consumers currently reports familiarity with energy-saving fixtures. Product quality appears to be relatively high. Retailers report a product return rate of less than 1% (all products), with those returns mostly occasioned because the products were broken or defective at the time of purchase. In addition, reported retailer perception of ENERGY STAR quality has increased from that noted in the previous MPER work. Independent testing of products, supported by the Sponsors, is continuing to move forward and will become an integral part of the ENERGY STAR program. Moreover, our analysis found that only a small proportion of CFLs sold in Massachusetts were delisted as ENERGY STAR-qualified products as a result of recent testing cycles. Environmental considerations, based on the presence of mercury in CFLs, have not had a significant effect on the market as of yet, but recent legislation in Massachusetts regarding mercury disposal has drawn more attention to the issue. 3 Future plans may include educating consumers about proper disposal of CFLs and the relative environmental benefits of CFLs compared to incandescents, even with the presence of small amounts of mercury. 4 Customer satisfaction with energy-efficient lighting products is high. A large majority of consumers is satisfied with their energy-saving products. About 70% of those who have purchased CFLs rate their satisfaction as a 4 or a 5 on a five-point scale, as do about 80% of those who have purchased energy-saving fixtures. 2 We will recalculate these figures with spillover included when additional data become available in August. 3 A small amount of mercury currently is an essential technological component in all CFLs. 4 The energy savings from CFLs can translate to an overall reduction in mercury emissions that would have occurred from burning fossil fuels to power an incandescent.

7 Massachusetts ENERGY STAR Lighting MPER 2005 Page iii Pricing changes have made efficient lighting products more affordable for most consumers, when judged on first costs alone. The current price difference between a 25-watt CFL (without any program subsidy) and a 100-watt incandescent bulb averages $4.39. The least expensive 25-watt CFL found on store shelves in 2005 is priced at $2.18 (without any program subsidy), while the least expensive 100-watt incandescent is priced at $0.19 an even smaller absolute difference. The incremental cost to the consumer for a two- or three-bulb energy-saving fixture compared to a similar standard fixture remains in the $20 to $50 range. Trial and usage of energy-efficient lighting products is increasing. By the end of 2005, 67% (64% weighted) of all households in Massachusetts, including both owners and renters, had tried CFLs, and 60% (56% weighted) have at least one CFL currently installed. 5 This last figure represents a gain of almost 50% in household saturation from 2002, when 43% (unweighted) of all households had at least one CFL installed. Moreover, the data indicate that only 13% of the customers who had tried CFLs (8% of all households) later removed them or failed to replace them. Similarly, 13% of all Massachusetts households had tried energy-saving fixtures by the end of 2005 and 11% are currently using at least one. Again, only 15% of customers who had tried these fixtures (2% of all households) appear to have removed them. About 11.3% of all bulbs in use in Massachusetts homes are CFLs amounting to about 12.0 million CFLs. About 3.9 million additional CFLs are in customers storage suggesting that these people plan to install CFLs to replace incandescents or other CFLs as they burn out, and signaling that these products are achieving the status of standard options to meet lighting needs. These factors appear to have affected sales volumes. Market-level sales of medium screw-based CFLs have increased from 430,000 units in 2000 to nearly six million in 2005, and now account for about 9.3% of sales of medium-screw based bulbs in Massachusetts. As might be expected given the longer life of CFLs, medium screw-based incandescent sales have decreased concomitantly, from 69 million in 2000 to about 57 million in This decrease matches the 12 million CFLs we estimate to be in use. Involvement of manufacturing and retail partners This program, along with other energy-efficient lighting programs offered elsewhere, continues to be important to manufacturers and retailers and helps to stimulate their production and marketing of energy-efficient lighting products. A majority of manufacturers says that, in the absence of such programs, they would not do as much product development. Only 25% of participating retailers say they would continue to offer CFLs and energy-saving fixtures if the program were not in place. 5 Unweighted data are presented for comparative purposes with surveys from past years. We recommend updating key variables from past surveys with weights for greater validity of comparisons over time.

8 Massachusetts ENERGY STAR Lighting MPER 2005 Page iv The program continues to attract participating manufacturers and retailers and thus increase the availability of energy-efficient lighting products. The number of retail locations selling ENERGY STAR-qualified lighting products through the program has increased from 248 in 2002 to 832 in Furthermore, the Negotiated Cooperative Promotion (NCP) program supports about 125 unique models of CFLs and energy-saving fixtures (as were found at retail stores during a two-month period) of the 500 or so models covered by the Sponsors program. Program Procedures In 2005, the NCP agreements were structured as either markdowns or buydowns with manufacturers; both buydowns and markdowns provide consumers with reduced product pricing at participating retailers. A primary difference between the two NCP program designs is the payment schedule. With a markdown agreement, 100% of Sponsor reimbursement to manufacturers is made upon receipt of sales data from individual retail locations. For buy-downs in 2005, manufacturers received 75% of the reimbursement from Sponsors upon confirmed shipment of the products to a particular retail location and the remaining 25% upon Sponsor receipt of sales data. Seventy-five of the 79 MOUs issued and implemented in 2005 were buydowns; the remaining four MOUs were markdowns. 6 The NCP component of the program has facilitated the sales of a very large number of CFLs. A goal of the 2005 program was to place more ENERGY STAR-qualified lighting products on the shelves of a wide variety of retailers. The Sponsors encouraged manufacturers and their retail partners to submit proposals for a variety of promotion types, including product markdowns and buydowns. 7 The flexibility provided by the reliance on shipment data for the buydown NCP MOUs allowed the Sponsors to engage manufacturers and retailers on a wide-scale basis and create greater consumer exposure and access to a wider choice of energy-saving lighting products. Sponsors currently base all buydown program product counts and program savings on shipments, not sales. The reliance on shipping rather than sales data for buydowns means that Sponsors take credit for product savings and are invoiced the corresponding amount upon receipt of shipment confirmation to the retailer, even though sales may take months to occur and additional lags may exist before consumers actually use the products. Taking credit for savings from products shipped and invoiced to the program also assumes that they are sold and used in Massachusetts. Sponsors tie a portion of their reimbursement to the receipt of sales data by store location to better ensure the products subsidized through 6 An additional 12 MOUs structured as markdowns were active in 2005, but these MOUs were issued under the 2004 NCP program. 7 When the Sponsors developed the Invitation to Participate (ITP) process in 2002, which has developed into the current NCP program, there were few models or structures for designing a market-based program or tracking program savings. During the planning stages of the NCP program, the Sponsors and non-utility parties (NUPs) agreed that the NCP program would take credit for savings when the incentive monies were paid; this structure has resulted in program reliance on shipment data, not sales data, for all MOU agreements using buydowns. All parties involved in the development of the program agreed at the time that a program design that focused on detailed sales data would be difficult to implement if the program were to engage more manufacturers and retailers and to make more energy-saving lighting products available to consumers. As the program has evolved since 2002, Sponsors have modified the program design in response to market forces and a desire to create more rigorous accounting of sales activity.

9 Massachusetts ENERGY STAR Lighting MPER 2005 Page v the program are sold and used locally. However, there appears to be no formal means in the database protocols for adjusting or documenting shipment data or program credit based on confirmed sales data. Tracking sales through NCPs is very complicated. 8 The Sponsors have necessarily maintained flexibility in administering the NCP program to respond to product availability, industry commitment, consumer response, feedback from manufacturers and retailers, and reviews of sales receipts. However, this very flexibility makes it difficult to track shifts in Sponsor budget allocations, product mix, shipments, and sales. While sales can be tracked to shipments from any given MOU, there are no direct means to track program shipments to sales in a given year. Tracking program sales requires that the data be collected and documented in a consistent way. Overlap of program activity across multiple years is necessary for a program that functions in the marketplace. Under the 2005 program design, sunset dates were established in MOUs to mark end-of-year activity; however, in the spirit of enhancing relationships with industry, they were not set up as legal contracts and were rolling, based on performance. From the perspective of tracking sales to shipments, this makes it difficult to account for sales and shipments in a given program year. The Sponsors are currently working to improve the procedures involved in tracking program sales for products sold through the buydown model. In the 2005 NCP, for example, not all retailers have been able to demonstrate proof of sales on behalf of their manufacturing partners partly because some retailers do not have formal mechanisms to track and provide sales data. To address this problem, the 2006 NCP RFP clarifies sales data tracking expectations, adds an option for the use of creative coupons to simplify sales tracking for some retailers, and creates higher incentives for products distributed through markdowns and creative coupons. 9 Technical Considerations This section addresses a new technology, the GU24 standard for fixtures, and consolidates findings concerning torchieres. GU24 Standard for Fixtures Sponsors decision-making with regard to continuing promotion of fixtures may be complicated by the pending emergence of the GU24 standard, which establishes a new pin base for replaceable ballasts that will allow easy, one-unit replacement when either the bulb or the ballast fails, and which will be standardized for interchangeability across manufacturers. The idea of the standard is to simplify matching of fixtures, ballasts, and pin-based CFLs for manufacturers, retailers, and consumers. It also allows consumers 8 One of the tasks of this evaluation was to examine the tracking of product shipments to sales records. 9 Creative coupons would be specially designed to be SKU- and/or package -specific and affixed to product packaging by the manufacturer before being shipped to retailers. The creative coupon would contain messaging that the incentive is provided by participating Sponsors; once the coupon has been removed, a message such as Discount Coupon Has Been Removed would be displayed. The coupons would be removed at the retail check-out counter and collected by the retailer. A maximum of 50% of a promotion s requested Sponsor incentive would be paid based on submission of store -level shipping and receiving documentation per shipment; the balance would be paid upon redemption of the coupon to the Sponsors.

10 Massachusetts ENERGY STAR Lighting MPER 2005 Page vi greater choice of features (light output, light color, dimmability) from a single fixture depending on the GU24 ballast/lamp combination used and theoretically extends the fixture life because the ballasts are replaceable. Even so, the standard will introduce a new set of pin-based fixtures and CFLs to the market, overlaying the somewhat complicated array of pin-based fixtures and CFLs that currently exists. Insofar as the GU24 standard is successful, it may undercut the sales potential of energy-saving fixtures that are currently on the market, and make it more difficult for consumers to find replacement bulbs for the fixtures they already have. Torchieres The following are some of the key findings related to torchieres: Program-supported sales of torchieres increased from 774 in 1998 to 38,499 in 2004, although they dropped to 15,640 in This drop appears to be related to changes in market demand rather than reduced Sponsor efforts. Energy-efficient torchiere installations account for 1% of the more than 800,000 MWh in lifetime savings resulting from the 2005 program year (adjusted for hours of use, inservice rates, and free ridership, but not spillover). In 2005, instant coupons and the NCP program reduced torchiere prices by $15 to $20. Seven percent of consumers surveyed report purchasing a torchiere-style lamp in the past year. Of those purchasing torchieres, 21% say the torchieres use compact fluorescent bulbs. The Sponsors plan on continuing their support of energy-saving torchieres. In fact, they plan on issuing a separate NCP in 2006 meant only for energy-saving fixtures and torchieres, because many of the manufacturers producing energy-saving fixtures and torchieres do not make CFL bulbs, deal with different retail stores, and have different needs related to the timing of manufacturing, shipments, and promotions. Conclusions The Efficient Lighting Market The findings detailed here suggest that the markets for the various types of energy-efficient lighting products are in different stages of market transformation. The market for CFLs appears to be sustainable, but, in the absence of the program, sales would fall below their current level. The market for energy-saving fixtures appears to be marginally sustainable, if at all. The CFL market would be viable on its own without continued support from the Sponsors and from utilities and energy efficiency organizations in other states. However, the market would likely be much smaller, and product development would probably slow down, if the Sponsors were to withdraw their support. At the same time, the data clearly show that considerable technical, economic, and market potential remain for CFLs for example, although CFL saturation has reached the impressive level of 11.3% of all bulbs in use, there are five times as many incandescents with CFL equivalents that are still in use and could be replaced. Given the program s high cost-effectiveness, the near-term energy savings it stimulates, the rate of market penetration, and the remaining potential, continued intervention in the CFL market on a fairly large scale appears justified.

11 Massachusetts ENERGY STAR Lighting MPER 2005 Page vii The market for energy-saving fixtures, however, appears to be far more dependent on the support of programs like that of the Sponsors. In the absence of such support, the market may not disappear altogether, but would likely revert to occupying a much smaller niche than at present. Sales of energy-saving fixtures are relatively modest even with program subsidies, reflecting lack of consumer demand, so that the risks faced by manufacturers in developing and marketing new products may be judged as being too high to surmount in the absence of program support. The potential advantage of promoting energy-saving fixtures continues to lie in creating a greater barrier to going back to incandescents once CFLs are installed. But this calculus assumes that replacement bulbs for those fixtures are available and an easy option for consumers. Even when pin-based CFLs are available, they are costlier than screw-based CFLs, which reduce their appeal to consumers. The forthcoming GU24 standard, if it is widely adopted, could help solve the problem of replacement bulb availability and cost, and so may be a necessary step if CFL fixtures are ever to become a mainstream market option. But adoption of this standard could also make the fixtures that are currently on the market obsolete, and make it even more difficult for consumers to find replacement bulbs for the fixtures they have already purchased. The GU24 standard could also cause some customer confusion and backlash, especially among those who have invested in the current generation of energy-saving fixtures. 10 Program Structure A shift in program structure to rely more on markdowns or coupons rather than buydowns would create more accountability for sales because these models base Sponsor reimbursement solely on sales data. However, a gain in program accountability may come at the cost of reduced product distribution, program savings, and manufacturer and retailer participation. If the program were to require sales data, additional considerations would include defining a mutually acceptable format for the data and monitoring the integrity of submitted data. Reliance on data only from electronic point-of-sale (POS) systems would likely prevent smaller manufacturers and smaller and independently owned retailers from participating in the program. Recommendations The findings and conclusions drawn from the research summarized here lead to several recommendations for consideration by the Sponsors. Program Design Continue support for each of the current program s components. NCPs are an extremely cost-effective way to increase sales of energy-efficient lighting products that are ready for the mass market. 10 See Section 5.1 Current State of Market Transformation and Need for Continued Intervention in the full version of this report.

12 Massachusetts ENERGY STAR Lighting MPER 2005 Page viii The two other program components also fill important functions. Coupons provide an important option to allow program participation by retailers without electronic sales tracking systems. The catalog provides a venue for the introduction of new products and for the sale of products (such as pin-based replacement bulbs) that are difficult to find elsewhere. It may be valuable for the Sponsors to consider their ultimate objectives with regard to the CFL market, and to plan accordingly. Different strategies may be appropriate for maintaining current market sales and encouraging some continued growth, on one hand, versus working to stimulate growth at an accelerated pace to capture even more savings, on the other. Some improvements could be made in setting incentive levels to target relevant consumer behavior and to encourage the development, production, and sale of additional options more effectively. For example, it may be useful to develop incentives for CFLs that are based on the number of lumens, a measure of light output, rather than wattage, a measure of electric power. 11 Strategic enhancements may involve the development of ongoing contractual relationships with manufacturers in lieu of annual NCPs. Increased continuity may reduce risks for manufacturers, and would assure greater availability of supported products year round, thus possibly increasing sales. Under the current model, consumers may go to a store where they have seen CFLs in the past, expecting to buy them there, but not be able to find them. 12 Strategies for reaching consumers who have not tried CFLs or are not familiar with CFLs could include more targeted marketing at grocery stores. The telephone survey revealed that these consumers are more likely to shop for incandescent light bulbs while grocery shopping than are CFL users; greater exposure of CFLs in the venues where non-users are most likely to shop for light bulbs will help to raise awareness of the technology. Conversely, those who have not tried or are not familiar with CFLs are less likely to shop for incandescent light bulbs at home improvement stores, where the majority of current CFL users buy CFLs. Fixtures and New Technology Developments Strategic planning for intervention in the energy-saving fixtures market may require investigating whether, when, and to what extent fixtures and torchieres using the GU24 pin base are likely to replace the current generation of energy-saving fixtures and torchieres, and what role, if any, support from the Sponsors should play in this transition. Additional consideration may also be given to the growth of solid-state lighting options (light-emitting diodes or LEDs). 11 Given the purpose of a light bulb, use of a lumen measure can more accurately label bulbs by their useful light output. The challenges include getting consumers to understand lumens as a more appropriate measure of light output than wattage and getting manufacturers to adopt a labeling system that prominently displays this information. A categorical lumen-per-watt scale can help ensure that efficiency standards are maintained. California has adopted a tiered incentive structure for CFLs tied to lumens. 12 Of the 30 participating stores visited in the on-site survey, nine did not have any NCP CFLs in stock at the time of our visit.

13 Massachusetts ENERGY STAR Lighting MPER 2005 Page ix Among the strategic options to be considered is whether support of the current generation of energy-saving fixtures should be limited, given the aforementioned concerns about relevant technological developments and their impact on manufacturer activity and consumer choice. One option would be to provide only that support which is necessary to ensure that manufacturers have a market for the current generation of energy-saving fixtures until the next generation becomes more widely available. Given that Sponsors say the program emphasis on CFLs versus fixtures has been market driven rather than Sponsor driven, this may already be happening to some extent. A more significant commitment to the current generation of energy-saving fixtures might be read as an implied promise to consumers that would be difficult to fulfill: that replacement lamps and ballasts for any fixture supported by the program in the past will continue to be available for years, if not decades. (Meeting this implicit commitment may be possible through the ENERGY STAR Lights catalog, so long as the number of models involved is limited. That alone may justify the continued use of the catalog.) Program Accounting The Sponsors have recently revised their MOUs with retailers to better align payments with proof of NCP sales. This should provide the Sponsors with a better system to track initiative sales and their resulting impacts. The Sponsors should continue to investigate the extent to which retailers are willing to tie payments to sales data and establish those provisions in the MOU process, insofar as this is feasible and reasonable given the importance of retaining retailers in the NCP process. It is important that the need for accurate data be balanced against the need to help sustain a large and vibrant market. In 2005, the vast majority of NCP MOUs were buydowns rather than markdowns. While there has been a shift toward more markdown-type agreements in 2006, roughly 70% of 2006 NCP MOUs are buydowns. 13 Given that the majority of 2006 NCP activity will likely involve buydowns, and the non-utility parties (NUPs) are advocating for better documentation that claimed savings are based on products actually sold during the program year, the program Sponsors may need to consider how to better match NCP buydown sales to shipments. One way to do this would be to use the proportions of NCP-related sales from retailer surveys that are conducted as part of the Lighting MPER, with validation of the estimate during the following program year. Alternatively, modifications in program tracking databases could be considered. Currently, the program year definition is not transparent across all NCP reporting. The date that MOUs are issued is part of the identification the MOU carries for its lifetime; however, its shipping invoice date the date the Sponsors agree is the reference for program year crediting is not part of its identification number and multiple shipments may be associated with any given MOU. In some cases the shipments for an MOU issued in 2005 may occur in both 2005 and Sponsors should consider revamping the tracking system to be able to track program sales to shipments for any given program year. 13 Estimate based on informal Sponsor review of 2006 MOU agreements in Massachusetts and Vermont, July 11, 2006.

14 Massachusetts ENERGY STAR Lighting MPER 2005 Page x Mercury As of March 28, 2006, both the Massachusetts House and Senate have passed bills aiming to phase out the use of mercury in products (not including CFLs) and regulate the disposal of products containing mercury (including CFLs). On July 7, 2006, the House and Senate finalized the differences between the bills and voted to enact such a bill. The Governor has ten days to make a decision. Pending this approval, and the details of the bill, the Sponsors may need to respond to the mercury disposal issue soon. Even if the bill is vetoed or sent back to the legislature with suggested amendments by the Governor, the emergence of the mercury disposal issue and the importance of mercury to the efficiency of CFLs, make one or more pilot programs for CFL recycling worth considering either information-only pilots in towns with municipal CFL collection facilities, or pilots involving both information and collection in towns without such facilities. One model for the latter type of program is that conducted by the State of Vermont Agency of Natural Resources, which provides recycling at True Value stores throughout the state. Product Quality Continued support of product quality assurance efforts is important and valuable. The Sponsors may wish to actively engage with the ENERGY STAR program, which will be absorbing this function, to voice their support and to provide relevant technical information. Tracking Program Progress over Time Re-analyze key variables from past consumer surveys for data accuracy. Comparability of consumer survey results is important for accurate tracking of market indicators. We recommend re-analyzing key variables from consumer surveys from 2002 through 2004 with proper weighting by household population, so that results can be validly compared with survey findings from 2005 and future evaluations. Estimate net-to-gross savings using best available current national sales data. Considering the fact that under the current program design there has been a large increase in sales, spillover is likely to be high and the program may be responsible for more savings than it currently claims credit for. Sponsors have approved including this analysis in the 2006 MPER, pending the release of an additional national sales data report expected later this summer (2006). Consider examining the effects of changing the NCP program design from tracking buydowns with shipment data to a tracking system that relies solely on sales data. This analysis would include assessing: the tradeoffs of greater accountability versus a possible reduction in the volume of product distributed; changes in the selection of products being distributed; overall savings; and net-to-gross estimates. It would also consider the impacts on the number and type of manufacturers and retailers participating in the program. If changes to the program design have already been agreed upon, this analysis should be done once these changes have been implemented; if design changes are currently under consideration, this analysis could help in the decision of whether to make

15 Massachusetts ENERGY STAR Lighting MPER 2005 Page xi such a change, or could identify ways to move from a shipment- to sales-based tracking approach with minimal negative impact on reported program savings. The Sponsors should consider how the Massachusetts ENERGY STAR Lighting Program as a market-based program can comply with potential reporting requirements to the Independent System Operator (ISO New England) to satisfy the needs of a forward capacity market. We believe that a combination of the hours-of-use data from the impact study of 2003, 14 the RDD (random-digit dial) and socket count surveys described in this report, and the net-to-gross estimates of CFL sales that are planned for late summer/early fall of 2006 could be used to develop robust and defensible estimates of demand reduction attributable to the program in Projecting the findings to 2007 and using them in a forward capacity market could be justified by using estimates from the low end of the range. These assumptions could later be validated. Closing Comment Taken all in all, the research summarized in this MPER shows that the energy-efficient lighting products program developed and maintained by the Sponsors has been effective and costefficient. It is affecting the production and marketing choices of manufacturers and retailers. Moreover, it has influenced consumers awareness, trial, and usage of the relevant products, encouraged improvements in product quality and satisfied consumers. As a result, the market for CFLs appears to have reached a sustainable level, although considerable potential savings remain. While the market for energy-saving fixtures and torchieres is not as mature as the CFL market, it is continuing to grow and may shift with new technological developments. Based on the results from this study, the evaluation team believes that continued efforts by the Massachusetts ENERGY STAR Lighting program to encourage consumer adoption of energy efficient lighting will continue to support a policy goal of capturing additional savings opportunities for energy-efficient lighting in the marketplace. 14 NMR and RLW, 2004, Impact Evaluation of the Massachusetts, Rhode Island, and Vermont 2003 Residential Lighting Programs.

16 Massachusetts ENERGY STAR Lighting MPER 2005 Page 1 1. Program Description and Evaluation Components This report summarizes the 2005 Multi-Year Program Evaluation and Market Progress Reporting (MPER) evaluation for the Massachusetts ENERGY STAR Lighting Program conducted on behalf of Cape Light Compact, National Grid, NSTAR Electric, Unitil, and Western Massachusetts Electric (the Sponsors). The information presented herein is a synthesis of all evaluation tasks conducted for the 2005 program; summaries of these evaluation tasks have been provided to the Sponsors previously and are included as appendices to this report. The Massachusetts ENERGY STAR Lighting Program is an on-going effort to encourage the use of ENERGY STAR-qualified lighting among residential customers. For many years the Massachusetts Sponsors, both individually and collectively, have had active energy-efficient lighting programs that included catalog sales, direct installs, retail coupons, and consumer education. The Sponsors also work with other regional programs through the Northeast Energy Efficiency Partnerships (NEEP) to leverage program effectiveness by aggregating markets and coordinating consumer messaging. Additionally, all Sponsor lighting initiatives are coordinated with and designed to support the national ENERGY STAR program. Since 2002, the Sponsors Lighting Program has included three basic components: The ENERGY STAR Lights catalog (and website) Instant rebate coupons Negotiated Cooperative Promotions (NCPs) The evaluation addresses all three program components, but focuses extensively on the Negotiated Cooperative Promotion (NCP), which has grown to account for 93% of the program s sales in 2005 from 38% at the inception of this component, in Two implementation contractors have primary responsibility for 2005 program delivery and fulfillment. The Energy Federation Inc. (EFI) does catalog fulfillment, processes rebate coupons reimbursing retailers, and processes invoices for the NCPs to reimburse manufacturers. Lockheed Martin Aspen provides field services, including training and retail support with promotions and signage; they also facilitate Sponsor negotiations with manufacturers and retailers for NCP proposals and assist Sponsors with NCP tracking. 1.1 Goals and Objectives Sponsors define the 2005 program as both a resource acquisition and a market transformation program; Sponsors differ on whether resource acquisition or market transformation receives more emphasis. It appears that the immediate objective is to have Massachusetts retailers sell as many ENERGY STAR-qualified lighting products as possible while remaining cost-effective an objective that can serve both market transformation and resource acquisition goals. The NCP program, as a mechanism to include the lighting industry in sales initiatives, is highly dynamic. Sponsor budget allocations and the product mix are established at the beginning of the program year, but allocations, spending, and shipments shift at any time during the year according to feedback from manufacturers and retailers, product availability, industry commitment, consumer response, and reviews of sales receipts. The budget is finalized when it 22 Haskell Street, Cambridge, MA Phone: (617) Fax: (617)

17 Massachusetts ENERGY STAR Lighting MPER 2005 Page 2 is filed with the Department of Telecommunications and Energy (DTE). The program continues to evolve with the introduction of initiatives such as the incorporation of creative coupons in Another important change is that additional markdown agreements have been reached with partners so that program activity can be more easily tracked with sales data rather than shipment data. 1.2 Current Program Components As noted, the 2005 Massachusetts Lighting Program included three program components: The ENERGY STAR Lights catalog (and website) Instant rebate coupons Negotiated Cooperative Promotions (NCP) This portfolio allows the Sponsors to involve a large number of retailers in the Commonwealth. Moreover, the Sponsors can ensure that all types of energy-efficient lighting products are available to customers, including relatively slow-selling fixtures and bulbs for older models of fixtures, without burdening retailers with excessive inventories. The remainder of this section describes each of the components, as well as some of its key benefits and drawbacks Catalog The ENERGY STAR Lights catalog (including products ordered over the Internet) is designed to provide customers with a diverse collection of products from a variety of manufacturers that they may not find elsewhere. It includes specialty items such as fixtures, table lamps and floor lamps. Many retailers are reluctant to devote valuable floor space to a broad range of energy-saving lighting selections, particularly if the products do not move fast. It is not meant to support highvolume products such as standard CFLs. The catalog also has one of the largest collections of replacement bulbs for products that EFI and others have sold in the past often several years ago. Customers can find replacement bulbs even for fixture models that are no longer available from retailers. In addition to providing consumers with easy access for hard-to-find lighting products, an advantage of the catalog is that, compared to other program components, it allows Sponsors to use customer addresses as a valuable targeting tool. Depending on goals (as well as available budgets and pertinent metrics), Sponsors can send catalogs to all customers or target customers based on past purchases or other demographic information. The catalog also provides content flexibility, allowing Sponsors the option of customizing some sections by devoting pages to energy saving information and education or to non-lighting products such as aerators. The EFI website is even more fluid than the catalog so it can be used to offer new products as they become available. However, some customers prefer using the actual catalog rather than the Web and a few have even placed orders from catalogs that are three or four years old. A drawback of the catalog is that products have to be shipped so the customers do not have the immediacy of seeing the product and taking it home. Shipping also adds to costs (and may

18 Massachusetts ENERGY STAR Lighting MPER 2005 Page 3 increase the likelihood of returns, since customers will not have had the opportunity for direct contact with the product) Retail coupons Instant rebate coupons provide consumers with discounts on qualified products at participating retailers. In 2005, instant coupons reduced product prices by an average of $2 for bulbs (coupons ranged from $0.49 to $3, and up to $6 for multi-packs), $10 for outdoor fixtures, $15 to $20 for torchieres, and up to $15 for indoor fixtures. To redeem a coupon, the consumer must fill out a brief form (product information, contact information, Sponsor service territory) and present it at the cash register. Instant rebates allow retailers to participate in the program in a timely manner they can offer different products from different manufacturers without waiting for NCPs to be drafted and negotiated once or twice a year. A major benefit of the coupon component of the program is that it provides an avenue for participation by smaller retailers who may not be able to comply with the data reporting requirements of the NCPs. In 2005, 106 retailers participated in the coupon program; these retailers included home improvement stores, hardware stores, price clubs, electrical supply stores, and grocery stores. A drawback to instant coupons is that the retailers must collect the coupons to be reimbursed and send them to EFI, and then allow for EFI s processing time before they are reimbursed. This means that retailers experience a lag in recovering the discount offered to customers and during that lag they must cover the additional inventory cost of carrying the ENERGY STAR-qualified bulbs. Sponsors also incur additional costs, in that they must print and distribute the coupons. Their field personnel must not only deliver coupons to the retailers, but also make sure they are properly set up for the duration of the promotion. Moreover, since coupons are typically filled out at the point of purchase by the consumer, data to assist in managing the program regarding account number, address, phone number, and the exact product purchased might be omitted or not legible The coupons flexibility may also be a drawback. An implementation contractor notes that there are annual and semi-annual changes in the coupons offered and the products offered and the dollar value of coupons varies by product type. These factors make it difficult to measure what works and to advise retailers about the best ways to promote products NCPs NCPs represent the Sponsors most extensive effort to support industry initiatives that promote ENERGY STAR-qualified lighting products. NCPs are agreements with manufacturers and their retail partners to discount selected ENERGY STAR-qualified bulbs and fixtures as well as provide other promotional support such as advertising, point-of-purchase (POP) materials, and consumer education activities. This effort was first introduced by the Sponsors in 2002 (at which time it was known as ITP or Invitation to Participate). As a mechanism for involving industry partners, the NCP program is constantly evolving to reflect the Sponsors appreciation of the needs and capabilities of manufacturers and retailers and of changes in the marketplace. The use of NCPs has grown rapidly over the past two years, so that they are now the most important component of the program in terms of the number of products sold and energy savings provided.